Profits, Politics and Panics

Hong Kong's Banks and the Making of a Miracle Economy, 1935-1985

Leo Goodstadt

Publication Year: 2007

This book offers an absorbing account of a turbulent banking industry which will be compelling reading not only for bankers and corporate executives but for readers interested in government's relations with business and the sources of Hong Kong's economic success.

Cover

Frontmatter

Contents

Preface

This is the second of three books reviewing the connections between
government and business in Hong Kong. The first, Uneasy Partners: The Conflict
between Public Interest and Private Profit in Hong Kong, investigated the political
coalition between officials and the business

Acknowledgments

I am happy to acknowledge the considerable assistance from the Hong Kong
Institute for Monetary Research (HKIMR) towards the research on which this
book is based. This included the award of research fellowships in 2005 and
2007 and publication of four Working Papers which are cited extensively in
the chapters that follow. Dr Hans Genberg, who as Executive Director ...

Introduction

Hong Kong is among the most remarkable of the twentieth century's economic
‘miracles’. It overcame the constraints on economic progress that beset the
rest of China and the Third World after World War II, despite the loss of its
traditional Mainland markets and in the face of rampant protectionism in
Western countries. An ‘industrial revolution' transformed the war-ravaged ...

1. Mismanaged by Mandarins

Throughout the twentieth century, anti-imperialism and a deep resentment
of foreign interference were among the most powerful political emotions of
the Chinese people. Before World War II, the nation was bent on reforms to
modernise social institutions, industrialise the economy and establish
democratic government. Western nations began to lose the privileges they had ...

2. Chinese Revolutionaries, Colonial Reformers

In the years between the two world wars, a new China emerged - and a very
different Hong Kong. This was a time of political turmoil and economic crisis
on the Mainland. Yet, inspired by a surging sense of Chinese nationalism, a
reform process gathered momentum, propelled by a nationwide desire for
unified government and the radical reconstruction of China's social and ...

3. Post-war Emergencies: From Boom to Bust

But there were considerable obstacles in returning to business as normal.
World markets no longer functioned freely, and international commercial
and financial activities were severely disrupted. In the pursuit of victory -
and even just to ensure survival - most governments had taken charge of
the direction of their national economies. Indeed, there was a widespread ...

4. Financial Centre under Siege

The speed with which Hong Kong rebuilt its economy after the ]apanese
occupation was not just a cause for astonished admiration overseas. lronically,
the colony's rapid return to business as normal provoked demands from
abroad for restraints on its unregulated bankers and traders, and it was to
spend the first three decades after World War II in a state of siege. Economic ...

5. Industrial Take-off: Cut-price and Self-financed

When Guomindang rule collapsed and the Chinese Communist Party came
to power in 1949, the state took control of the nation's foreign trade, and
foreign investment was to be eliminated. The historical foundations of Hong
Kong's prosperity vanished. The colony's economy did not disintegrate ,
however. Instead, it transformed itself into a manufacturing centre whose ...

6. The Rise and Fall of the Chinese Banks

In the 1950s, there seemed to be no limit to what Chinese bankers could
achieve. The Hang Seng Bank, incorporated in 1952, overtook its local and
foreign rivals, induding two British note-issuers, and it had become second
in size only to HSBC by 1964. The following year saw the downfall of the Hang
Seng Bank, which only survived the bank runs of 1965 because it was taken ...

7. A Dangerous Business Model

The most puzzling feature of Hong Kong's banking history is the eclipse of
the local Chinese bankers. The previous chapter described their once proud
status, their resilience in the face of political turmoil and economic disasters,
and their skilful management of credit risks in troubled times. It also explained
how their‘ status deteriorated throughout the 1950s in spite of the extra-Iegal ...

8. An Avoidable Crisis: The 1965 Bank Runs

As 1965 opened, banking was enjoying a boom, and prospects looked excellent
for the economy as a whole. A newspaper headline captured the bullish
outlook:‘ Prosperity is around the corner. Banking office openings establish
record in 1964'.1 A month later, two banks had failed, runs had begun on
other local Chinese-owned banks and the banking industry was under threat.2 ...

9. From Banking Crisis to Financial Catastrophe

The closing decades of the last century saw no let-up in the pace of Hong
Kong's economic expansion. Between 1970 and 1979, the economy in real
terms doubled in size, and by 1985, it was three times larger than it had been
in 1970 (see Table 1). Behind this remarkable performance lay an economic
transformation as rapid and as dramatic as the industrial take-off after World ...

10. Colonial Money and Its Management

11. The Exceptional Colony

The management of Hong Kong's finances was an issue which provoked
constant mistrust of the colonial administration, not just among the public at
large but also among the government's hand-picked appointees to the
legislature. It proved almost impossible to convince the community that Hong
Kong's reserves - the government's budget surpluses and other assets, ...

Conclusions - A Political Deficit

Hong Kong's economic ‘miracle' was not based on abrupt breaks with the past
or ‘revolutions' in production processes and business techniques. The miracle
lay in the surprising quality of its performance by comparison with other
Chinese cities, British colonies and the rest of the Third World. Hong Kong's
enduring feature between 1935-85 was its success as an ‘enterprise' economy. ...

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